Citigroup says long-term gold price could double oby Dorothy Kosich
Monday, June 30, 2008
www.mineweb.com
RENO,NV
Citigroup forecasts that "gold is likely to regain $1,000/oz by end-08 and towork higher through 2009-2010."
In their recent Gold Commodity Update, Citigroup metals analysts John H. Hilland Graham Wark also predicted that "longer term, we believe that gold iscapable of doubling or tripling from current levels."
The Citi global metals forecasts have an upward bias, at $906/$950/1000average in 2008/09/10.
The analysts said "secular and seasonal factors favor gold" during the secondhalf of this year. "We remain positive on gold, based on macro and supply/demandfactors. The forces that have propelled gold for 5 years are firmly inplace."
During the second quarter of this year, gold has averaged $896/oz, up 34%from the same quarter of 2007 and down 3% from the first quarter of this year."Following a series of downside fundamental tests gold appears to have found afloor, and quietly climbed back to $917/oz."
"Despite extensive hand-wringing, the ‘floor in the dollar' has inflictedminimal damage," the analysts noted. "We believe the drivers of the gold bullmarket remain intact, heading into a favorable period."
"We see gold as well-positioned heading into Autumn, when fabrication tendsto heighten the market," they added.
Nevertheless, Hill and Wark warned, "It will be important forseasonal/volatility dampened fabrication demand to recover, before gold can movehigher." However, they added," Longer term, we would not be surprised to seegold double from current levels as the global policy prescriptions for thecredit crunch remain powerfully and uniformly re-flationary."
Meanwhile, Citicorp suggested that slow de-hedging is unlikely to result in agold market surplus, although they said it remains a key question. "We believethat the combination of wealth creation in China, petrodollars inRussia/Mid-East, and ETF inflows is likely to absorb possible additional‘supply' of 200-300 TPY," the analysts advised.
In the meantime, "real interest rates are still strongly negative, inherentlyfavoring hard assets and gold," Citigroup noted.
In their analysis Citigroup found that the principal Exchange Traded Fundshold 954 tonnes of gold bullion valued at US$24 billion, down 4% from peaksduring the first quarter of this year. Total volume is equivalent to about 130days of mine supply. The analysts noted that average daily gold ETF tradingvalue was about $900 million, "more than that of Newmont and Barrickcombined."
ETF holdings are up 5% or 39 tonnes from trough levels at the end of May amidprofit-taking after $1,000, according to Citigroup.
"Gold correlations are evolving," the analysts noted. "Adherent owners ofgold as portfolio insurance should be delighted in recent weeks as increasinglynegative is being established between gold and the S&P 500. A strongpositive correlation with oil has prevailed year-to-date. The negativecorrelation with dollar remains a fixture."
Citigroup's analysis also revealed that "gold shares have stalled asinvestors have flocked to physical bullion or FRF-rich bulk/base miners."
"Disappointingly, gold equities remain near levels seen when the gold was inthe low $700s," the analysts determined. "On the other hand, cash flow should bestrong with gold above $900/oz.
"The move in gold has been perhaps too sharp for the equities," the analystssaid. "During a financial crisis, safe haven demand favors the simplicity ofbullion."